So you’ve got the next great invention and all that’s standing between you and a pile of money is the Patent Office. It’s a safe bet that most people seeking patent protection have had such thoughts of financial gain cross their mind. After all, the patent system is an incentive based system so who wouldn’t envision dollar signs at some point.
This begs the question, “How much is a patent really worth?” Obviously, there are too many variables implicated in the hundreds of thousands of patents issued each year to make a generalized statement like, “the average patent is worth ___”, but we can certainly look at recent patent transactions in the market place to get a sense of what an upper-tier valuation might look like.
Last year, Apple led a consortium of companies (including Ericsson, Research in Motion, Microsoft and Sony) to purchase a portfolio of over 6,000 patents from Nortel at the hefty price of $4.5 billion. That comes to roughly $750,000 per patent. Apple alone agreed to fork over $2.6 billion on the purchase.
Apparently Microsoft was just warming up in the Nortel transaction because earlier this month it bought roughly 800 patents from AOL for $1.056 billion. Granted, the purchase included licenses to the 300+ patents remaining with AOL, but even assuming each of those licenses cost half of the average purchased patent the transaction still equated to a cost of over $1 million per patent. (On a quick tangent, if you’ve ever wondered what kind of patents the world’s biggest corporations might be interested in selling, check out the AT&T patent sale page.)
Even considering the players in these transactions are Apple, Microsoft, Sony, etc… these are astonishing sums of money for what amounts to a written description on how to “make and use” the technology at issue. Of course the patents aren’t purchased for their instructional value, but because they allow the holder to prevent others from making, using, selling, offering for sale, or importing the claimed invention in the United States.
Some of the patents acquired will likely include relatively broad claims directed to important technologies for the relevant industries while many or most will provide relatively narrow claim coverage. Correspondingly, a relatively small number of the patents included in the portfolios acquired probably account for the largest share of the value – some may be worth tens of millions while others are only worth tens of thousands. However, the value of acquiring these large patent portfolios is multi-faceted and includes the following benefits:
- The purchaser removes these patents as barriers to commercializing new technologies while at the same time controlling those barriers to use against its competitors;
- The purchaser increases its cache of patents available to draw on to assert against competitors who threaten to sue for infringement of their patents; and
- The purchaser can attempt to generate licensing revenue by licensing rights to use the technology covered by patents in its growing portfolio.
So what can we take away from these ramblings about patent price tags? Well, it’s safe to say that companies are looking at patents as a must-have asset in their corporate coffers. As the upper-tier per-patent asking price climbs to astounding levels it is easier than ever for inventors to get lost in dollar signs before they even put the title on their patent application.
Although a single patent, with relatively broad claims, can have significant value, most patents have a more limited value and some have minimal or no value. Developing a portfolio of patents covering a wide variety of features or aspects of a product line or technology can create a synergistic effect on the value of the patents. Although it may be relatively easy for a competitor to design around a single patent, trying to design around a phalanx of patents becomes more difficult thereby increasing the value of a larger patent portfolio.